The world's manufacturing superpowers -- Germany, Japan and China -- as well as every other advanced country except the U.K. have carefully thought out industrial policies. Why don't we?
In the US, the idea of industrial policy has been pushed on to the intellectual and political blacklist by free market fundamentalism. It is caricatured as government bureaucrats interfering with the workings of the market by ineptly trying to pick winning companies. The underlying assumption, an article of faith for true believers, is that an international free market exists and that, if only we would stop meddling, it will always produce the best possible results for our economy and our people. Anyone who disagrees is shouted down as an economic ignoramus or a socialist (think Soviet style central planning).
Ignored facts:
Thoughtful and well-constructed proposals for a US industrial policy (we should call it a "competitiveness" policy in the hope of sidestepping some of the prejudice against it) have also been put forward. One of the best and most innovative is for a Technology Based Planning System administered by a private non-profit United States Technology Strategy Board for use on a voluntary basis by US corporations, educational and research institutions, banks and venture funds, and to provide policy guidance to relevant governmental entities.
This approach was first developed as Project Socrates, a joint CIA-DIA effort led by physicist Michael Sekora aimed at developing technology, industrial, and trade policies to win the Cold War. Its key proposition is that competitive advantage, at the company or national level, comes from control of technologies that are critical to satisfying present and future consumer needs. From this perspective, strategic planning should start with a map of all important technologies showing how they relate to each other and to present and anticipated consumer needs. The entities where these technological capabilities reside: business, academic and government, are part of this techspace map. The techspace map is smaller for a particular company, larger for an industry and all-inclusive for the United States. In all cases it must include non-US companies, academic institutions and government entities.
Strategy is then developed to assure the availability, development and symbiotic interaction of critical technologies and to deny them to competitors. At the government level, this approach would inform trade policy -- what markets are important to protect and which not; educational policy -- what technologies should students be taught; the choice of what basic research to fund; and what interdisciplinary business consortia to authorize and encourage.
Building on the work of Project Socrates, Sekora's firm has expanded and automated the further development and updating of the techspace map using only publicly available information. They have also developed tools to navigate it, i.e., to identify the connections between technologies required to satisfy business and consumer needs, see where control of these technologies reside, identify alternative paths to meet these needs, and develop strategies to outmaneuver the competition.
This system is ready to be put to use on a national scale. To do so, a private non-profit entity, the US Technology Strategy Board, would be established to obtain, maintain and administer it. Although the Board's trustees would include representatives from relevant federal departments, they would not control it. The majority of trustees would be representatives from key participants in the US economy: each major industry; research institutes and universities; banks and venture funds; state education departments; and labor representatives.
The Board would license the Techspace Map and associated tools. It would convene meetings and otherwise educate potential participants from all relevant sectors about the system and how to use it. The system would give each business participant a broad and highly accurate view of the resources and vulnerabilities of its competition, potential strategies to outmaneuver it and where the resources required for these strategies reside. It would allow university researchers, educators, banks and venture firms, trade negotiators and other government participants to see and evaluate these strategies and what roles they could play in them. This visibility and accuracy would provide guidance to, and promote the development of. voluntary and productive symbiotic relationships between all categories of participants.
The Board would also use the system to develop a grand technology based competitiveness strategy for the United States. Participation in the strategy by corporations and all other non-federal institutions would be voluntary and be based on perceived self-interest. Modest fees charged for access to the system would allow it to rapidly become self-supporting. The fact that our major competitors -- including countries that continue to capture our high value manufacturing industries -- are using and further refining planning systems similar to Project Socrates is sufficient reason to seriously examine and consider it for the US.
But the proposal you are putting on the table is simply monstrously complex, a bureaucratic tangle of multiple actors and nightmarish complexity. It is simply not practical, would accomplish little and is rarified in the extreme. And don’t forget that politics rules every inch of the way in industrial planning, whether it is ethanol subsidies for midwestern states or Barney Frank keeping car dealerships open in Massachusetts.
And a few other caveats: industrial planners are most useful setting the big agenda; market timing is up to business people to decide. And China as a successful model? It has a stilted economy, excessive manufacturing, no pension system, some of the most polluted cities in the world (“cancer villages”),and massive government corruption because the Communist Party and government officials control investment.
Finally, Japanese officials tried to discourage Soichiro Honda from making cars after WWII –“you will never compete.” Honda was successful in spite of the industrial planners.
This will be very important as power generation goes in two directions centralized and a decentralized activities as technology emerge.
Look at Germany - they have 750 publicly funded institutes for research. They are already thinking 20 years ahead to see what could benefit the country.
If the car industry is an example of these policies, and compare it to Detroit, they have much better cars that sell for a larger profit, the car companies make money, the workers have guaranteed state pensions and unlimited public health coverage, and 5 paid weeks of holidays.
Germany sees China as an opportunity, not as a problem : they sell in China both high end finished products such as Audis, and the machinery that the Chinese need for their factories.
The U.S. will continue its downhill slide until we have strong manufacturing and industrial policy. A country that does not make things will end up broke.
You signal out Germany, China, and Japan as exemplars of a national industrial policy, but you have not shown success, if any, is due to their national industrial policy or despite it. I know Japan and China quite well, Germany less so, and often these national industrial policies are geared to assist incumbents at the expense of new entrants. It is one of the reasons that none of these countries develop and grow new industries, IT, Genetics, etc. In short, their economic policies are adopted to support old world technologies.
The new industries in China and Japan that are doing well, fall OUTSIDE, the national industrial policy.
You are right, if centrally planned industrial policy works so well, the Soviet Union would be killing it. Yet today, it is their new industries that are killing it, not those the state is trying to prop up with ‘industrial policy’
The government as a central processor for the needs of the market is no substitute for 300 million individual processors determining through trial and error what the market wants and needs and directing resources accordingly
We do not need a coordinating body to get market participants to cooperate, profit already takes care of that and it is the most efficient way to direct important resources. When I think of centrally directed resources, through government fiat, I think Freddie and Fannie Mae.
And BTW, didn’t 1930’s Germany have the same diagram that you included above?
Kai
> advanced country except the U.K. have carefully thought out industrial policies. Why don't we?
We do, we just do it behind closed doors by unknown, UNELECTED, people who support a virtual fascist state, run by consortiums of super rich and powerful people who feel only a need to cut Americans off and disenfranchise them.
As long as boards reward the CEO with huge salaries for quarterly profits and dividends, and we will
continue our decline.
As long as consumers shop strictly by price for cheaper imports, losing the dollar multiplier effect we will continue our decline.
As long as we continue to have illegal immingrants off shoring their income back to their home countries, losing the dollar multiplier effect we will contnue our decline.
As long as we continue to be energy dependent, losing the dollar multiplier effect we will continue our decline.
As long as we continue to elect representatives from both parties who watch out for their contributors instead of their country we will continue our decline.
Also, the policy wouldn't be an interventionist measure. Participation would be voluntary.
That's one thing that makes me stop and think... With all the corporations/etc so seemingly stuck on old ways (which are pretty much never challenged, but accepted as staunch fact), do you think there would be enough people willing to go out on a limb with this sort of thing?